Understanding Connected Data Is the Key to Understanding Your Customer
With available technologies, data can be a real-time, on-demand asset that a financial institution can use to reinvent poor processes and procedures, transforming the way it engages with and understands its customers.
- By Aaron Gross
- April 9, 2021
In today's digital world, personalized products and recommendations are the norm -- from the next movie to stream to the next home accessory to buy. However, in the financial services world, financial institutions still struggle to make sense of who their customers are, what risk they present, and what tailored products and services to offer them. This ultimately stems from having siloed data that produces multiple, incomplete views of customer data across the bank.
Without a single source of truth, financial institutions face greater risk due to an incomplete understanding of their customers, higher costs as more staff are needed to make manual decisions, and a poor customer experience.
Historically, data and process have expanded faster than the technology to manage it. For example, most national and multinational banks expanded over time via the acquisition of other financial institutions and then had to put into place cumbersome risk management processes in response to modern regulatory change. This would often happen without ever properly unifying data or systems, meaning that a single customer view remained out of reach.
However, technology has caught up and advanced approaches now exist to significantly improve how data is connected within an organization. Connecting data creates the customer context needed for smarter decision making, resulting in significantly improved customer experience and a complete rethinking of existing processes that were set up as an "emergency" and were never fit for purpose.
Knowing Your Customer Is One Thing; Understanding Them Is Everything
Know your customer (KYC) is the process of verifying the identity of your customers, either before or as they start doing business with an organization, and is a regulatory requirement for all financial services firms. According to Celent, a research and advisory firm focused on technology for financial institutions, it is estimated that spending on technology for anti-money laundering (AML) and KYC compliance by North American financial institutions reached $3.4 billion in 2019 -- a clear indication that banks are trying to create a change.
To help understand how using the KYC onboarding process to acquire customers has traditionally been inefficient and complex, let's look at an example. John is the proud owner of a growing home improvement business, Absolute Best Construction Inc. When John applies for a business account with his local bank, he's surprised to find the bank asking him questions about his identity, address, and finances -- because John has been a personal customer of the bank for over 20 years!
The bank is unable to connect and use its own data to make the onboarding process easier -- let alone decide which products and services would be the best to offer to John. This means that KYC and risk management processes must start from scratch, utilizing valuable back-office analyst time and effort that could have been better directed at other customers.
This is where technology can play an integral role.
Using the Right Technology to Create Complete Customer Context
Entity resolution and network generation, utilizing graph analytics, are two mature and advanced technologies that financial services firms and other businesses can implement to understand the connections that drive relationships and customer behaviors. Entity resolution technology allows for data sources to be combined at scale and at speed to create a single customer view -- even if the source data is from different legacy systems where data quality is poor. Although data matching approaches have existed for many years, dynamic entity resolution takes this one step further by effectively combining many data sets in real time to support business decisions.
If the bank in the earlier example deployed entity resolution technology, it could identify through its internal data that John has both a personal and wealth account, and that John had recently provided his passport details as part of an international payment. The bank could then use this information to employ a rapid onboarding process, eliminating repetitive documentary and financial checks. Once a bank has a complete single picture of the customer, it can draw accurate conclusions to effectively evaluate and reduce financial crime risk, improve decision making, and modify processes to ensure a tailored and frictionless customer experience.
Starting from a single consolidated view of the customer, network generation allows the financial institution to create "context" that can help it better understand its customer and the customers' activities throughout their relationship with the bank. To continue the example, the bank could use external corporate registry data to build a network of other companies John is connected to, showing that Absolute Best Construction Inc. is just the most recent of John's many successful businesses. The bank could then decide to offer the company a business loan based on the success of John as an entrepreneur. From a risk perspective, networked data would also immediately highlight if Absolute Best Construction Inc. was bought by a new company in a high-risk jurisdiction or with connections to sanctioned individuals, allowing the bank to take quick action to guard against financial crime risk.
With the combination of these two technologies, data becomes a real-time, on-demand asset that the bank can use to reinvent poor processes and procedures, transforming how it engages with and understands its customers. KYC changes from a compliance-oriented process centered on due diligence and periodic reviews that create a poor customer experience into a continuous, dynamic approach where customer data changes become a way for the bank to improve and deepen the customer relationship while also updating its view of risk.
Informed Data for Decision Making Results in Improved Customer Experience
Data is fundamentally an asset that when used correctly, can transform the way a financial institution works with its customers. The key to harnessing the power of data is implementing the right technologies that allow banks to no longer worry about siloed information and poor data quality. Using entity resolution and graph analytics to create a single networked view of customers, banks can make faster and more more informed decisions, leading to improved customer experiences, more efficient processes, and better risk management of the customers, their relationships, and their behaviors.
Aaron Gross is the head of KYC Solutions at Quantexa. Aaron leads Quantexa’s Contextual KYC solution and works with financial services clients globally to apply Quantexa’s decision intelligence platform to solve complex financial crime challenges. Prior to Quantexa, he spent 8 years at Ernst & Young in New York and London advising banking and capital markets clients about compliance technology, including how to use data and analytics to more effectively detect risk while improving the efficiency of compliance operations. You can contact the author via LinkedIn.